
/Uj 



AG, 



SUPERANNUATION IN THE 
CIVIL SERVICE. 



REPORT OF A SPECIAL COMMITTEE 



OF THE 



National Civil-Service Reform League, 



1901 



" It cannot be too clearly and generally understood that the princi- 
ples of Civil Service Reform in no wise countenance any tenure of office 
other than during the continuance of merit and fitness. The League 
again expressly disclaims any advocacy of Civil Service pensions as a 
part of the Merit System, which contemplates such pensions no more 
than did the system of appointment and removal by favor prevailina: 
before the Merit System was introduced. On the contrary, the protect 
tion which an assured tenure during efficiency affords to public servants 
should enable them, by the exercise of frugality and forethought dis- 
played by all prudent persons, to provide out of their current earnings 
for the ordinary contingencies of age and infirmity, and the League 
would see with pleasure the adoption of reasonable rules for the ascer- 
tainment from time to time of continued efficiency on the part of public 
officers through fair and practical tests applied impartially and in good 
faith." — [resolution adopted by the league at its annual meet- 
ing, DECEMBER I4, I9OO.] 






Report of the Committee on Superannuation 
in the Civil Service. 



To the National Civil Service Reform League : 

THOSE now in the classified civil service of the United 
States who have become superannuated, have not en- 
tered through the civil service examinations. As pointed out in 
the last annual report of the United States Civil Service Com- 
mission, the average age of entrance has been only 28, while 
the law has been in operation only seventeen years, so that the 
average age of those who entered in the beginning can be 
only 45. Neither the law nor the rules require permanency 
of tenure. Any one can be dismissed for incapacity or in- 
efficiency, as well as for misconduct. In order to secure jus- 
tice, the appointing officer must give his reasons, and the 
employee concerned must be given a chance to reply, or to 
explain, before the final act of dismissal. 

If the temptation to make dismissals for political purposes 
has been removed so that old men are no longer put out sim- 
ply to make room for political favorites, on the other hand, 
under the old system, there were often political reasons for 
keeping incompetent old men in office, and still more 
frequently were original appointments made of men who 
had already passed the age of iisefulness merely to please in- 
fluential politicians who wished to foist on the government 
incapable men who vt^ould otherwise be on their own hands or 
on the hands of influential supporters. Indeed, numerous ap- 
pointing officers of large experience under the " spoils system" 
have testified without contradiction that the needs of the ap- 
plicant were most frequently and urgently set forth ; his fitness 
hardly ever. 

It is very difficult for public officials, unless compelled by 
some stringent regulations, to discharge subordinates who 
have become incapable from old age when these subordinates 



have been faithful in the past and are absolutely dependent on 
their salaries for support. The extent of this evil it is hard to 
ascertain, some experienced officials considering it greater than 
do others. It is true that mere age tables do not tell the whole 
story. Some men at seventy-five have more vigor than others 
at fifty. Yet, as an average, seventy may be taken as the general 
age of the end of activity. In the United States Army sixty- 
four is the age of retiring. In the civil service the require- 
ments are not so exacting on the physical forces as in the 
army, with the exception of a few small departments like the 
Railway Mail Service. It is to be remembered in this con- 
nection that experience and knowledge of the history of a 
department make a man, too old to enter new employment, 
yet invaluable in that in which he has long served. Every man 
of business is familiar with such cases. If we assume then 
that about as many over seventy are thoroughly useful as under 
it are incapable from old age, we may use seventy as a fair 
basis for obtaining an approximate estimate of the situation. 
In the eight departments at Washington in 1893 there were 
228 persons of seventy years of age and over out of 11,657, 
or almost exactly 2 per cent. In 1900, the only other year 
for which the data are accessible, we find there are 262 of 
seventy years of age and over out of 10,967, or a little over 
2 per cent., making an increase in seven years in the ratio of 
6 and 2/7 in 10,000 a year, while the number of persons of 
eighty years and over has actually decreased in those seven 
years. In the New York Post Office in 1900 there were only 
21 of seventy years of age and over out of 3,561 employees, 
or less than 6/10 of i per cent. 

The best answer to the claim that the new system will 
" fill the public service with old men" is found in the experience 
of the state service of Massachusetts. There are 800 positions 
in that service strictly under competitive examinations. The 
civil service law has been applied to them for 16 years, while 
for 24 years before, the appointing power in the state had 
been under the control of one party only — the heads of the de- 
partments being retained for long periods without change — 
and there were no clean sweeps. While vacancies were filled 
for political reasons, practically no removals were made during 
all of this time except for cause. This service therefore repre- 
sents the most stable service, for 40 or 42 years, that is known 



in the United States; quite as stable as the present classified 
service of the United States. There is no system of pensions 
or fixed retirement or fixed terms of office, or age limit or re- 
curring examinations, and yet the Secretary of the Massachu- 
setts Civil Service Commission informs us that only 3 out of 
the 800 or 3/8 of one per cent, are of 70 years of age or over. 
As to the remedies, the more radical ones now generally 
proposed for superannuation are the following : 

I. A civil pension list. 

II. A retirement fund to be made up by deductions from 
salaries. 

III. A provision requiring endowment or deferred annuity 
insurance from all seeking admission to the Civil Service. 

IV. Provision for the forced retirement of a certain per- 
centage of employees each year. 

V. Recurring examinations for promotion, reductions and 
dismissals. 

VI. A daily record of efficiency for the same purpose. 

VII. Fixed terms of office. 

VIII. Forced retirement at a certain age. 
And also certain combinations of these. 

The first three plans provide for old age support while 
the last five provide for compelling retirement, with no other 
means of support than what the incumbent may voluntarily 
have provided for himself. Under provision for old age sup- 
port a more stable and experienced service is secured. Under 
the present system in the United States there is great com- 
plaint that the more active and efficient public servants who 
have entered through competitive examinations too frequently 
retire from the service just as they have gained experience 
and have reached their most useful period, in order to take 
positions in private life where promotion and provision for old 
age can better be secured. Of course, no forced retirement 
system would lessen this tendency. On the other hand, old 
age provisions tend to make employees stay on after the age 
of maximum usefulness till they have reached the age for re- 
tiring on a pension, and the number of old employees to be 
dealt with is larger than in a system where no such provision 
is made; that is, the supply of old-age support increases the 
demand for it. 



The civil pension system has led to great abuses in the 
past in England. It is extremely unpopular in America. 
There is danger of a civil service lobby in Congress should 
the system be adopted. The retired list for the United States 
Army officers was established in 1861. The officers receive 75 
per cent, of their active service pay, and the retiring age is 
sixty-four, and below that age in case of permanent dis- 
ability. In the army this system has worked to great advan- 
tage and has led to no important abuses ; no one thinks of 
aboHshing it. In England the age of retirement in the civil 
service is sixty, and separation from the service at that age is 
compulsory with some rare exceptions, while pensions on re- 
tirement before sixty are granted in most cases of permanent 
incapacity. No persons are granted a pension who have not 
been at least ten years in the service, and then the payment is 
calculated on one-sixtieth of the salary on retiring for each 
year of service, with 4o/6oths as a maximum. The pensions 
paid in the British service amount to 16 per cent, of the 
salaries paid for active work. The British pension list is, how- 
ever, unduly enlarged. For example, many gratuities are 
granted on retirement where regular pensions are not allowed, 
and in some cases the pensions are made equal to the full 
salary. If we should take the retiring age for the United 
States civil service, as has been before suggested, at 70, instead 
of 60, as in the English service, the pension list would cost 
eventually, it is estimated, from 4.3 to 7.2 per cent, of the 
salaries paid for active service, in order to give pensions of 60 
per cent, of the average salary during employment. The per 
centage varies according to circumstances. It depends upon 
whether only strong and healthy employees are allowed to 
enter the civil service or persons of average health. The above 
per centages are calculated on the basis of no resignations. 
With a reasonable number of resignations before 70 the per 
centage would be still lower. That the highest rate sug- 
gested, namely, 7 and 2/10 per cent., is amply high is proved 
from the experience of the British retired civil list where the 
actual per centage of those retired to those in the service is 
far below the theoretical maximum that the application of the 
same mortuary tables, without allowing for resignations, (viz. 



21 per cent.) would show, taking the average age of entrance 
into the British servce and the British age of forced retirement. 
It is fairer to base a provision for old age on the average 
salary during employment rather than on the salary at retire- 
ment, as the salary at retirement is usually the highest received 
by the employee, and as otherwise there would be the tempta- 
tion to secure an increase of salary just before retirement in 
order to increase the pension. 

II. 

A retirement fund made up of deductions from salaries 
might be in two forms, (a) a deduction from all salaries for 
the immediate support of a retired list and {l>) annual deduc- 
tions from the salaries of those hereafter to enter the service, 
which should be allowed to accumulate at compound interest 
to form a fund for annuities payable only to those who have 
thus contributed, 

{a) At present it would take only about 2 per cent, of the 
average salaries of those in the departments at Washington to 
pay the full average salaries of those of seventy years of age 
and over, and only 1.2 per cent, to pay pensions at 60 per 
cent, of the average salary. If a further deduction were 
made from the pensions of those who had been in the service 
for less than forty years, on the Enghsh system, it would re- 
quire still less. But those now in the service include only 
those who are able to do some work, while the retired list 
would also include the absolutely helpless. Besides this a 
pension at the end of the service tends to increase the number 
of persons who will stay on for the sake of pension; so that in 
the future we should have to allow for deductions 4.3 per 
cent,, and possibly even more. Besides other objections this 
system is extremely unfair to those coming into the service 
young and staying on for many years. They would have had 
deducted from their salaries very much more than would 
liave insured them the same annuity at the same age in any 
insurance company, and those older and nearer the age of re- 
tiring would have paid far less than their share. 

((^) The plan of beginning with those now entering the 
service would be more fair. In England this system was 
begun in 1829. The deductions were 2.5 per cent, on all 
salaries not exceeding $500 (^100), and 5 per cent, on 



8 

all others. This deduction, considering the high rates of in- 
terest on safe investments at that time, and considering the 
early age of entering the service, might have sufficed but for 
the large number of persons under 60 years of age who became 
entitled to share in the fund, and but for the basing of the pen- 
sions on the maximum or retiring salaries and some unexpected 
charges on this fund. In 1857 the fund had amounted, after 
all payments out of it to over $5,000,000, but the chief 
charges on the fund had not then fully matured and it be- 
came evident that with the greatly swelled pension list this 
fund was inadequate, so it was turned into the general ex- 
chequer and regular pensions at the same rates were as- 
sumed by the government. A royal commission in 1888 
reported in favor of 5 per cent, deductions from salaries, but 
this recommendation has never been followed. 

The average age of entering our classified service is 28 
years. Starting with that, it would require continuous annual 
payments of $27 a year on male lives, to pay an annuity of 
$600 to those who should attain 70 years of age. That would 
be 2.7 per cent, on a salary of $1,000. This cost is based 
upon information to cover the special case, furnished by one 
of the largest life insurance companies in the United States. 
They actually issue such policies now, under the name of 
" deferred annuities." On the basis of paying the same annuity 
at the age of 65 and over, instead of at 70, it would cost 
$55.20 a year, or a little over twice as much as if payable at 
70 and over. This dijBference is caused by deducting five 
years of payments and five years of accumulatious at com- 
pound interest and adding five years of annuities to be paid. 
It suggests how much is added to the cost of pensions in 
Great Britain by making the age of retirement sixty, instead 
of 65 or 70. 

The cost of these deferred annuities includes, of course, 
expenses and profits of the insurance company. Theoretically 
the government could insure at less cost, but on the other 
hand, it must be assumed that the government would be 
limited to investments in United States bonds with very low 
rates of interest, while insurance companies can secure 4.5 per 
cent. It should be borne in mind that the rate of interest is a 
very important factor in calculating the accumulations for long 
periods. Accumulations at 4 per cent, compound interest are 



.9 

far more than twice as great as those at 2 per cent, com- 
pound, because compound interest accumulations are on a 
basis of geometric progression. So that after all, the cost of 
insurance by the government would be greater than in first 
class companies. 

The government might make deductions on the basis of 
the cost of company insurance, use the fund for its own pur- 
poses and pay the annuities on the same basis as the com- 
panies, but this would be making up the difference out of the 
pockets of the people, and when once the annuities, at least 
for any considerable length of time, are not strictly confined 
to a self-sustaining fund, there comes in the old danger of a 
lobby and claims for special privileges, as in the case of direct 
pensions. The Brosius bill introduced December 4, 1899, 
provides a deduction of 2 per cent, for a civil service retire- 
ment fund to be invested in United States bonds. The retir- 
ing annuities are to equal 75 per cent, of the highest pay re- 
ceived. All persons 70 years of age who have been in the 
service 35 years are to be compulsorily retired. Persons 60 
years old who have been 30 yeais in the service may be vol- 
untarily retired and so may all disabled persons who have been 
in the service twenty years. The Civil Service Commission 
is to decide all questions of retirement and establish regula- 
tions. Annuities are to be paid from the retirement fund and 
not otherwise, and if demands exceed the fund, they fail. Em- 
ployees who are discharged or die before retirement are to be 
refunded the amount of pay withheld. It seems quite evident 
that the 2 per cent, withheld under such conditions would not 
suffice to pay these annuities. 

III. 

The advisability of requiring insurance in the way of de- 
ferred annuities from all those who enter the service is largely 
a matter of the cost of this insurance. A deferred annuity pay- 
able, for example, at $600 a year, every year of life over 70 on 
male lives beginning at 28, (the average age of entrance into 
the classified service), would require payments of $27 a year, 
or 2.7 per cent, on an average salary of $1,000. On a larger 
average salary the proportion would be the same. For exam- 
ple, 60 per cent, of an average salary of $2, 000 would be $1,200, 
and an annuity of $1,200 at 70 and over would cost $54 a year. 



lO 

beginning at 28, or just 2.7 per cent, of $2,000. Those enter- 
ing under 28 would pay less, and those over 28 correspondingly 
more. While this remedy applies only to those entering the 
service it could be extended by correspondingly larger pay- 
ments, according to increase of age, so as to apply to all who 
have been in the service for some reasonable number of years. 
At the age of 38 for example, which is 10 years over the aver- 
age of entering the classified service, an annuity of $600 a year 
at 70 years of age and over would require annual payments of 
$52.20. For those somewhat longer in the service and older, 
and to whom the increased deductions would come hard, a 
smaller annuity might be required. To those who are still 
nearer the age of 70, however, the cost of such a deferred 
annuity would entail too large a deduction from the salary to be 
reasonable. For example, it would take a payment of about 
$3,600 from one at the age of 69 to procure an annuity of $500 
a year for the rest of his life beginning at 70. As all those now 
in the service nearing 70 years of age came in before the civil 
service law was enacted, that law could not be blamed, if the 
United States government were asked to deal liberally with 
these cases. Their number is very hmited. A considerable part 
of the cost could be deducted from their salaries, and in a few 
years the extra expense from this source would cease entirely. 

The insurance companies would, we feel sure, after inquiry, 
be willing to make deposits of good securities in the United 
States treasury to assure the payment of these deferred an- 
nuities. They already make such deposits with various state 
treasuries as security. The insurance should be limited to all 
such companies as would consent to this plan and perhaps to 
such as would also submit to and pass national inspection. 
There will be no objection to this latter. It would be a good 
advertisement, and if it would lead to substituting a national 
examination for the frequent and often useless re- examina- 
tions by numerous state authorities, it would be of great 
advantage to the life insurance system of the country. 

To the pure deferred annuities could be added a life insur- 
ance payable in case of death under 70 years of age, or various 
other forms of life insurance, at the option of the employees, 
through the payment of additional rates, so that in case of a 
death before 70 the estate of the deceased might receive back 
the face value of the deductions made from the salary. The 



II 

cost of this added life insurance would be about $20 a year, 
beginning at 28 years of age, for one thousand dollars, pay- 
able only in case of death before 70 years of age, so that, 
beginning at 28, an annuity of $600 a year could be secured 
if the employee survived the age of 70 — and a cash payment 
of $1,000 on death if he should die before 70 — on an ann,ual 
payment of $47.00, or 4.7 per cent, of the salary of $1,000, 
The amount of added insurance is taken at $1,000, as that 
represents roughly a little above the average amount deducted 
from the Salaries of those who would die between 28 and 70. 

The plan above suggested in its general features has 
already been adopted in Victoria by the Act of 1890, which re- 
quires that such insurance shall be effected during the term of 
probation as a prerequisite for final appointment. The poli- 
cies are made non-assignable, and in this country it might be 
well also to have them deposited with the government. An- 
other precedent is found in the German compulsory old age 
insurance, adopted in 1881, which supplements for the lower 
grades of the civil service, the pensions which apply only to 
the higher. 

One of the objections to this plan is that it does not pro- 
vide for those who become prematurely old before the age of 
70 or allow those over 70 who are still useful to stay on. 
Perhaps a proper modification of the plan would be for the Gov- 
• ernment to allow as m.any of its employees over the age of 70 
as are really useful, to stay on on regular salary, on condition 
that the annuities falling due on their lives would be used, as 
long as they remained in the service, as a fund from which to 
pay annuities to those who had become superannuated under 
70, so that the government could be supporting as many of 
the superannuates under 70, as there were employees staying 
on in the service at 70 or over. This more elastic arrange- 
ment would cost the government nothing. It would be fair to 
all, as all on entering would have an equal chance of receiving 
the annuity before 70 if incapacitated, or of being employed 
at a salary larger than the annuity when over 70. Some age 
limits and minimum length of service should be fixed for 
those receiving annuities under 70. On separation from the 
service for other reasons than would entitle one to an annuity 
(such as resignation), the policy might be assigned to the em- 
ployee going out, and he might keep it up for his own benefit 



12 

by continuing the annual payments, or turn it into other forms 
of insurance on equitable arrangements with the insurance 
companies. 

In addition to this plan it might be well to provide for 
honorable transfers in some cases with diminished salaries. 
Some positions require unusual activity and energy. An in- 
cumbent may be unable to do the work of such a position as 
well as when at the prime of life, and yet be not generally 
incapacitated. He might indeed be extremely valuable to the 
government in some other position for which his energies are 
amply sufficient and where his experience and knowledge 
would tell. To allow such transfers would give the govern- 
ment the benefit of younger men in the more active offices 
and yet not deny to it the experience of the older. 

The average age of retirement and the amount and 
kind of insurance might well be very different from what is 
suggested here. The suggestions have been made with an 
idea of presenting some conception of the cost and ad- 
vantages of such a system. 

IV. 

Forced retirement of a certain percentage of employees 
each year has some precedent in the navy of the United States, 
where it was recently adopted and did good at the time. As 
a permanent policy it is subject to the objection that it will 
retire too many at one time, and in one department, and too 
few at another time, and in another department. If no pro- 
vision were made for old age support of some kind, it would 
be very hard on those who have been long in the service, and 
have become old, but who, not having had previous notice of 
any such regulation, have made no provision of their own for 
support after retirement. 

V. 

Recurring examinations for promotions, reductions and 
dismissals without provision for the support of those dismissed, 
are open to the objection last stated ; so are also the plans of 
daily records of efficiency for the same purpose, or fixed terms 
of office, or retirement at a certain age, if taken alone. 

Without going too much into detail, it seems that the sys- 
tem of recurring examinations, combined with personal inspec- 



13 

tion and report by a government physician, and with the fol- 
lowing plan of daily records of efficiency, would be a good 
method of ascertaining the period when retirement should 
come to each individual. If it were combined with the more 
flexible plan of annuities above suggested it would serve as a 
basis for determining those who could still be retained ,to 
advantage though over 70, and those who should be retired 
under that age. 

VI. 

As to the plan of daily records of efficiency for promotions, 
reductions and dismissals, whether alone or in combination 
with recurring examinations and physician's inspection, this 
seems certainly to have many advantages. The appointing 
officers can tell better than can any one else the real merits of 
the employees when they are directly under them. Where 
the office is too large for that, the head of the division can do 
the same, and if a record of daily efficiency is kept, based on 
a good system of ascertaining the amount and quality of the 
work done, it would certainly aid very much in securing fair- 
ness of treatment and in weeding out the inefficient. Such a 
system was adopted in the Navy Department under Secretary 
Long, in 1897, for preliminary tests for promotion, and has been 
recommended by the Civil Service Commission in its Sixteenth 
report as very valuable. As to political motives influencing 
the action of the heads of divisions it maybe stated that most 
of such heads of divisions are now within the classified ser- 
vice, and receive their places by promotion from those who 
have entered under civil service examinations. As to the best 
plan to be adopted, however, although the views of exper- 
ienced appointing officers at present differ a good deal, it seems 
that in the end they will work out a better plan than this com- 
mittee can do. But it may be prophesied that any such plan 
would combine many of the features of both the last two 
remedies. 

VII. 

As to fixed terms of office the remedy does not seem 
advisable. The plan for fixed terms of offices may have two 
interpretations. It may allow for reappointment at the end 
of the term, or dismissal may be final and absolute when 
the term is completed. If reappointments are allowed it 



is but a haphazard remedy at best and pretty sure to be 
ineffectual. It is haphazard, as many may need to be dis- 
missed before the term expires and it will be ineffectual be- 
cause the same reasons that prevent removal for old age and 
incapacity will induce reappointment. Under the four year 
term law, if there is no political motive for removal, there 
is never any pretense even of an examination of the record 
of efficiency and reappointment becomes a perfunctory affair. 
Many illustrations can be given of reappointment of per- 
sons who have passed the age of usefulness, on grounds of 
pity, even apart from any political influence. For example 
in the service of the State House at Massachusetts the only 
old man kept in an important position of late years after his 
usefulness had passed, held one of the few offices that was sub- 
ject to a four year term. What little political influence there 
may have been was rather in favor of creating a vacancy, but 
it seemed so hard to refuse reappointment when he was too 
feeble to find employment elsewhere, and as his subordinates 
could do the work, he was continued on and recently died in 
office. If the dismissals, on the other hand, are made final and 
absolute it would work great injury to the service by depriving 
it of the experience gained in office and of some of the ma- 
terial needed for promotions to higher positions. For exam- 
ple, if the ten year limit, which is often suggested, were appHed, 
at the very time that an employee has shown his ability for 
promotion by the best possible test, that of experience in 
office, he may be forever put out of the service. 

VIII. 

The system of forced retirement at a fixed age has the 
double disadvantage that some men are dismissed whose ser- 
vices are still of the greatest value and that others who have 
not reached the specified age are, and perhaps long have been 
incapacitated, are retained. The British system and the United 
States Army system provide for retirement at a fixed age, but 
they also provide for putting on the retired Hst, under suitable 
conditions, those who have become unfit for service before 
reaching that age. So those systems are open to only one 
of the two objections. 



is 



RECOMMENDATIONS. 



Your committee unanimously recommend, as the best rem- 
edy for superannuation, a system requiring life insurance on the 
deferred annuity plan, by all employees during probation, as a 
prerequisite to their final appointment, the policies to be non- 
assignable and in government control, and to be secured by 
deposits from the insuring companies, in government control ; 
those employees still capable and useful at the fixed age to be 
allowed to stay m the service at regular salary, on condition that 
their annuities go to a surplus fund with which to pay annuities 
to those under that fixed age who have become incapable from 
age and through no fault of their own, together with a system 
of daily records of efficiency, combined perhaps with recurring 
inspection by a government physician and in some cases, with 
examinations, to determine who may stay in over the fixed age 
and who below it are to share in the surplus annuities^ The 
exact age at which the annuities would normally be payable, 
varying perhaps for different kinds of service, the amount of 
annuity to be paid for in the various grades, the age and 
conditions under which the surplus annuities would be paid 
to those superannuated below the normal age, and all other 
details necessary to carry out the plan as more fully outlined 
heretofore, should be fixed by regulations to be drawn by 
some special commission, composed perhaps of the Civil Ser- 
vice Commission and some experienced officials of the depart- 
ments, appointed by the President. It might be well to apply 
this system to a portion only of the classified civil service, say 
to the departments at Washington, and to the larger post- 
offices and custom-houses, just as was done when the civil 
service law was first put in operation, and then to extend it as 
rapidly as the commission, with the approval of the President, 
may deem expedient. 

Respectfully submitted, 

Richard Henry Dana, 
William Dudley Foulke, 
Silas W. Burt, 

Committee. 



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